Notions and strategies about value influence investments and the markets. Value is a mental model and can be oriented toward symbolism that goes far beyond primary survival needs. Ultimately people influence value dramatically. Value runs deeply within our brain with many brain areas being involved in constructing value. Listen on Mental Models Podcast | Value Drives our investing lives: #2
How the brain represents value:
The basal ganglia, which is part of the reward circuitry, are geared toward foraging.
The amygdala is associated with reading the value of a situation and the emotional salience of our judgments.
The neurotransmitter dopamine facilitates learning based on rewards – over time, values can become influenced by subjective factors and can be elaborated by group-based perception.
Subcortical systems are very fast and instinctive and form the basis for our instinct and intuition – they are the gateway to attention
Value research on financial reward and penalty’s on memory performance conducted by Dr. Krawczyk.
Incentives cause initially and downstream responses within the brain. When there is money on the line they observed amygdala and medial frontal cortex activated associated with the initial representation of the financial reward. Other effects occurred when money was on the line- signal was amplified in perceptual and attention regions of the brain across our large cortex indicating that these brain regions link incentives to our behavior – effectively influencing how we perceive and act on information.
Investing behavior or process without value is significantly riskier than with money.
Paper trades when first start investing
Another analogy is playing poker in cases where there is no value to the chips, where you just playing to learn the process
Value is a social phenomenon.
Humans observe facial cues. Different objects can take on value
Value of an object can be the financial, the utility of the object or coffee cup, but if is Warren Buffet’s coffee cup the value changes due to the social connotations associated with it. Listen on Mental Models Podcast | Value Drives our investing lives: #2
Value in the history of an object: The President at University of Texas at Dallas has a presidential mace with a metal flown in space on it since the university has a link to former astronauts. The University mascot is a Comet called TEMOC, or Comet in reverse.
Learning mechanism when starting to invest
·Memories are values…an example is a boy scouts mug with the Camp Kia Kima brand on it, while not a material value, as it is a plastic mug, it gains values through what it represents. AK summer camp gets a call out – the branding of the coffee mug and it has value through memories.
·Protected values or sacred values: We won’t budge on these and they are often our highest values and placed in sacred positions within our lives. Our family is a scared group and we want to maintain and protect our DNA. AKA as inclusive fitness from the evolutionary biology world
Inclusive fitness example– gazelles “stotting” behavior – a jump when in the presence of a predator. It may warn family of a preditor, but it has low value for the individual, but high value for the family to go on by distracting the predator.
The overall value of money is communally held. Human constructs have value, such as crypto currency, with the predecessor bing gold.
The value of giving – research with brain imagining by Dr. Krawczyk and colleagues investigated the value individuals place on an activity, such as building homes for the homeless, but would they value it enough to actually wish to engage in that activity? This study was conducted with Dr. Adam Teed who is now at SMU. The medial frontal lobe value centers of the brain activate when we perceive personal value in an activity – linking to charitable giving when you value the activity. The published research article on this topic by Adam R. Teed, Jelena Rakic, Daniel B. Mark & Daniel C. Krawczyk, PhD. (2019) is available here – click this link
Value in giving: This happens when a building is donated, your name goes up on the building, and all giving is good but it is sometimes especially good for some people when recognition accompanies giving.
Value in investing and earning more money: In investing, people have more money than they could ever need, the very hungry man with the very small mouth, that can never get enough, we want more and can be envious of others and. AKA motivational primates!
Value in art: Seeing the Mona Lisa is a shared social experience due to its immense popularity. This leads people to take selfies with the painting, and encourages the retelling of the experience.
Value in musical instruments and the story behind or history: Stradivarius violins have stories behind them and that story has value in its retelling
A classic symbol of social narrative, amplifying value…Charitable event with Warren Buffett in which a signed ukulele by Warren Buffet was offered, and Buffett began to bid on his own ukulele recognizing that people were not understanding the value of it, in the end the ukulele was sold for $25,000. Listen to Warren Buffett play the ukulele
Narratives have value on the market and pricing: Benjamin grant wrote about net nets value is about discounted cash flows of a business and investing is a shared illusion – the core thesis: things can change.